Beech Corporation is a merchandising company that is preparing a master budget f
ID: 2438688 • Letter: B
Question
Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:
Beech’s managers have made the following additional assumptions and estimates:
-Estimated sales for July, August, September, and October will be $300,000, $320,000, $310,000, and $330,000, respectively.
-All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.
-Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 60% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.
-Monthly selling and administrative expenses are always $56,000. Each month $6,000 of this total amount is depreciation expense and the remaining $50,000 relates to expenses that are paid in the month they are incurred.
-The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.
Required:
1. Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30.
2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.
2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30.
3. Prepare an income statement for the quarter ended September 30.
4. Prepare a balance sheet as of September 30.
Beech Corporation Balance Sheet June 30 Assets Cash $ 93,000 Accounts receivable 127,000 Inventory 45,000 Plant and equipment, net of depreciation 219,000 Total assets $ 484,000 Liabilities and Stockholders’ Equity Accounts payable $ 80,000 Common stock 330,000 Retained earnings 74,000 Total liabilities and stockholders’ equity $ 484,000Beech’s managers have made the following additional assumptions and estimates:
-Estimated sales for July, August, September, and October will be $300,000, $320,000, $310,000, and $330,000, respectively.
-All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.
-Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 60% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.
-Monthly selling and administrative expenses are always $56,000. Each month $6,000 of this total amount is depreciation expense and the remaining $50,000 relates to expenses that are paid in the month they are incurred.
-The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.
Required:
1. Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30.
2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.
2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30.
3. Prepare an income statement for the quarter ended September 30.
4. Prepare a balance sheet as of September 30.
Explanation / Answer
Calculation of expected cash collection July August September Total Estimated Sale ($) (A) 300000 320000 310000 930000 Cash Collectiion 35% in the month of sale (A*35%) 105000 112000 108500 325500 65% in the next month of sale (A*65%) 127000 195000 208000 530000 232000 307000 316500 855500 Merchandise Purchase Budget July August September Total Sales During the Month ($) (A) 300000 320000 310000 930000 Cost of goods sold 180000 192000 186000 558000 Add: Closing Stock (25% of next month sale) 80000 77500 82500 240000 Less: Opening Stock 45000 80000 77500 202500 Required Purchase 215000 189500 191000 595500 Cash disbursements for purchase budget July August September Total Required Purchase ($) (A) 215000 189500 191000 595500 Cash disbursements 40% in the month of purchase (A*40%) 86000 75800 76400 238200 60% in the next month of purchase (A*60%) 80000 129000 113700 322700 Cash disbursements 166000 204800 190100 560900 Income statement for the quarter September,30 Particulars Amount ($) Sales 930000 Less: Cost of goods sold (60% of sales) 558000 Gross margin 372000 Less: Depreciation expenses (6000*3) 18000 Other selling and administrative expense (50000*3) 150000 Net Profit 204000 Balance sheet as on sept, 30 Assets Amount ($) Cash (93000+855500-560900-150000) 237600 Account receivable (310000*65%) 201500 Inventory 82500 Plant & equipment , net of dep (219000-18000) 201000 Total assets 722600 Liabilities and stakeholder equity Accounts payable (191000*60%) 114600 common stock 330000 retained earnings (74000+204000) 278000 Total Liabilities and stakeholder equity 722600
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